Channel Tunnel operator Eurotunnel has warned it could be declared bankrupt this week if last-ditch talks over its crippling debt mountain fail.
The company yesterday started two-day talks with rebel bondholders in a bid to thrash out a deal to tackle its £6.2 billion debt.
But it said that if a deal was not struck by the end of todaythe company will be forced into bankruptcy after a warning from its auditors.
That could mean control of the tunnel being passed to a group of banks, although many of the creditors believe that the courts would not declare the company insolvent because it has enough cash to last until January.
The French courts could also appoint an official to devise a restructuring plan, as happened with Eurotunnel in 1998.
Eurotunnel yesterday insisted its goal was to reach an agreement to secure the future of the company but said bankruptcy was a distinct possibility.
"These are eventualities that a reasonable management has to prepare for," said a spokesman. "But our goal is to reach an agreement with all our creditors."
The spokesman added that the discussions are a question of company ownership and business will carry on as normal, no matter what.
Eurotunnel agreed a financial restructuring with its major creditors in May which would see debt levels reduced to £2.9 billion.
But it was rejected by junior bondholders accounting for £1.9 billion of the current £6.2 billion debt because the proposal offered them just £75 million. Eurotunnel said it must now reach an agreement with the rebels by today because that is when the company's waiver from the major creditors to hold such discussions expires. Without the waiver, further talks represent a default by Eurotunnel on its debts.
Auditor KPMG is obliged to make a statement on Eurotunnel's financial position at an extraordinary general meeting with shareholders on July 27.
Eurotunnel yesterday said that with such a statement lingering over the company it could be declared bankrupt before that date if a deal is not reached.
The spokesman said: "Could we justifiably continue to run the company? Probably not. If there is no deal, bankruptcy might come before July 27.
"It all hinges on the negotiations. If the negotiations can reach a consensual conclusion, the financial restructuring can go ahead."
But Arco, a group representing more than 70 per cent of the rebel bondholders, cast doubt over Eurotunnel's claims.
It said the company could get a new waiver so discussions could continue.